Reservoir of natural gas could hurt coal interests

Spencer Hunt, The Columbus Dispatch

Monday

Oct 24, 2011 at 12:01 AMOct 24, 2011 at 10:55 AM

A huge reservoir of natural gas trapped in shale rock deep beneath Ohio holds the promise of a fresh supply of cheap energy and thousands of new jobs. But what does it mean to the state's coal industry?

A huge reservoir of natural gas trapped in shale rock deep beneath Ohio holds the promise of a fresh supply of cheap energy and thousands of new jobs.

But what does it mean to the state's coal industry?

Environmental groups cheered on Oct. 14 when Vancouver, Wash.-based Baard Energy announced it was switching gears from coal to natural gas to produce diesel and jet fuel at a proposed refinery in Columbiana County.

Environmental advocates called the switch a victory in the fight against climate change. A natural-gas refinery would produce 75 percent less carbon dioxide, a key climate-change gas.

"It's a significant environmental improvement," said Shannon Fisk, an attorney with the Natural Resources Defense Council advocacy group.

It also was a setback for Ohio coal interests. The refinery would have required as much as 9 million tons of coal each year, about one-third of what Ohio's mines produced in 2009.

Power companies, including Columbus-based American Electric Power, also are burning more natural gas instead of coal to generate electricity. AEP's use of gas-fired power plants more than doubled from 2010 through 2011, according to spokeswoman Melissa McHenry.

"That's largely because natural gas prices are lower," McHenry wrote in an email.

Mike Carey, president of the Ohio Coal Association, said his industry's future remains bright. He said increasing demand from foreign countries, particularly China and India, will help keep Ohio's 2,900 coal miners at work.

"As far as worldwide demand is concerned, you are definitely going to see that go up," Carey said. "It's just a matter of getting to that market."

The changes are tied to costs. An increased supply of natural gas, spurred in part by a boom in drilling in the Marcellus shale in Pennsylvania, has helped drive a steep drop in natural gas prices. One million cubic feet of gas goes for less than $4 these days, down from an average of $9 in 2008, according to the U.S. Department of Energy.

Oil- and gas-industry officials say Ohio's Utica shale holds a similarly vast supply of natural gas, oil, propane and butane. Drilling supporters think that an Ohio boom could help support and create as many as 200,000 jobs over the next four years.

Energy Department statistics also show that the average price of coal in the U.S. has increased from nearly $45 a ton in 2008 to $48 this year. The price increase is driven in part by increased demand for coal in China, India and other Asian nations that are paying, on average, $148 per ton this year.

Carey said Ohio can reach Asian markets by sending coal on trains to Baltimore or in barges to New Orleans for overseas shipment. He also said Ohio power plants are going to keep burning coal.

"Coal still produces 80 percent of the electricity in this state," Carey said.

John Baardson, a Baard Energy consultant, said switching from coal to natural gas at the proposed plant makes economic sense. He said the switch also will cut the cost to build the plant from an estimated $6.5 billion to $3.5 billion.

"Coal is not as compelling a case as natural gas is today," Baardson said.

Lem Smith, Ohio director for the American Natural Gas Alliance, said the increasing supply of gas could persuade power companies to use it more often to generate electricity.

"We believe it's a game-changer," Smith said.

For years, natural gas was considered too expensive and was burned only during times of peak demand. Statistics from AEP show that its natural-gas plants are generating electricity nearly 20 percent of the time so far this year, compared with 9 percent in 2010.

Tom Stewart, vice president of the Ohio Oil and Gas Association, said he thinks power companies will burn less gas when prices increase. And that means coal has a future.

"All energy sources need to withstand the brutality of the marketplace," Stewart said.

shunt@dispatch.com

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